Shotgun Clause Simulator

How a shotgun clause works

Either owner (the offeror) may name one price. The other owner (the offeree) then has a fixed time to choose: sell their own interest to the offeror at that price, or buy the offeror's interest at the same price. Whichever they choose, the business ends up with one owner. Agreements call it a shotgun, a buy-sell, a put-call, a Russian roulette or a Texas shootout; Brooks, Landeo and Spier list the names courts have used for the same mechanism, and note that the clause has become close to boilerplate in some fields, real estate joint ventures among them ("Trigger Happy or Gun Shy?", working paper version, published in the RAND Journal of Economics, vol. 41, 2010, pp. 649-673). "Texas shootout" also gets used for a different clause, a sealed-bid auction between the owners, covered below, so the wording of the agreement matters more than its label.

The clause is usually written as a price per percentage interest. The simulator works with the price of the whole business, which is the per-percent figure times 100; each half changes hands for half of it.

Why the price is honest between equals

The appeal is the old rule for dividing a cake: one cuts, the other chooses, so the cutter cuts evenly. Judge Frank Easterbrook put it in one line in Valinote v. Ballis, 295 F.3d 666, 667 (7th Cir. 2002):

"The possibility that the person naming the price can be forced either to buy or to sell keeps the first mover honest."

That holds when both partners put the same value on the business, both know it, and both can pay. Price it low and the other side buys a bargain; price it high and they sell dear. The best price is the value itself, and the "Equal partners" case above shows it: each ends where a fair split would leave them.

Relax any of those three conditions and the logic slips. When the partners value the business differently and the offeror knows the other's figure, the offeror names exactly that figure and keeps the whole difference: with complete information the mechanism "favors the proposer", as María-Angeles de Frutos and Thomas Kittsteiner put it ("Efficient Partnership Dissolution under Buy/Sell Clauses", RAND Journal of Economics, vol. 39, 2008, pp. 184-198). When each partner knows only their own value, the advantage swings the other way; they summarize R. Preston McAfee's 1992 result that the proposer is then at a disadvantage to the chooser. Their own contribution is that partners who bargain first over who gets to be the chooser can still reach an efficient result, which helps explain why the clause stays popular.

The partner who cannot raise the money

The richer partner's edge is the one the clause's symmetry hides. An offeree who cannot finance the purchase has no real choice at all, so the offeror can name any price above what the offeree can raise. Kathryn Spier of Harvard Law School described it in an interview with Peter Mahler (December 2013):

"The shotgun method can also backfire if one of the parties is financially constrained, and cannot raise the funds to complete the transaction. In this case, the party proposing the price has an incentive to make a low-ball offer, since the recipient cannot afford to purchase and will essentially be forced to sell at a deflated price."

Claudia Landeo and Kathryn Spier list "asymmetric financial resources" alongside unequal information and unequal ability as the conditions in which shotgun mechanisms "may lead to inequitable outcomes" ("Irreconcilable Differences: Judicial Resolution of Business Deadlock", 81 U. Chi. L. Rev. 203, 206 (2014), summarizing their "Shotguns and Deadlocks", 31 Yale J. on Reg. 143 (2014)). Pulling the trigger first does not save the poorer partner either. Switch the simulator's default case to "Partner B names the price": B cannot stand behind any price over $300,000, because if A chose to sell, B could not pay, and at every price B can afford A simply buys. The table under the chart shows the same loss to B whoever moves first.

The cash that matters is what a partner can raise inside the clause's deadline, not their net worth. A partner whose wealth is the business itself, which is common, has little to borrow against apart from the business they would be buying, and lenders take time.

The partner who knows less should not name the price

The second trap catches the offeror. Where one partner runs the business day to day and the other is a passive investor, the insider knows what it is worth and the outsider does not. In Landeo and Spier's model the outsider who is made to name the price "is guaranteed to receive the proverbial 'short end of the stick'": the best the outsider can do is name the average of what the business might be worth, and the insider then sells when the true value is lower and buys when it is higher (81 U. Chi. L. Rev. at 207). When the insider names the price, the same model gives an equitable split, which is why they argue a court ordering a shotgun should make the better-informed owner the offeror. In "The partner who knows less" case above, A guesses $1,000,000, give or take 30%, names $1,000,000, and B, who knows the business is worth $1,250,000, buys A's half for $500,000. Before the answer came back A could expect to end with $425,000 on average, against $500,000 for half of A's own estimate.

Brooks, Landeo and Spier find the practical consequence: parties are "gun shy". Shotgun clauses are common in agreements and rarely triggered, an uninformed partner never voluntarily makes a buy-sell offer in their model, and owners prefer plain offers to buy or to sell, which leaves room for bargaining to fail. Their laboratory experiments bore that out.

How the simulator works

The offeror names a price P for the whole business. The offeree buys the offeror's half for P/2 if the business is worth more than P to them and they can raise P/2; otherwise they sell their half for P/2. An offeree who cannot raise P/2 must sell whatever the business is worth to them. The offeror never names a price whose half they could not pay if the offeree chose to sell.

• Both know the figures. The offeror knows the offeree's value and cash, so the best price sits at the offeree's breaking point: their value of the business, or just over twice what they can raise if that is lower. At that point the offeror decides whether the offeree buys or sells.
• One partner runs it and knows more. The business is worth the same to either owner and only the insider knows the figure. An outsider who names the price treats every value in the guessed range as equally likely and picks the price with the best expected result; with no cash limit that is the middle of the range. An insider who names the price is worked out as if both knew the figure.
• What each ends with is the cash received, or the business at its owner's value less the cash paid. The even-handed price is the midpoint of the two values (the value itself when they agree), with the partner who values the business more owning it; each partner's line is what they end with against that.

It assumes each partner knows what the other can raise, cares only about money, and closes on time. It leaves out taxes, legal and appraisal fees, the interest on a loan to buy, and the cost of the fight. How to value a partner's share covers what the value figures should be, and the partner buyout calculator what a buyer could actually borrow and pay.

Protections that make the clause fair to the poorer partner

Practitioners describe 30 to 60 days to respond and 30 to 90 to close as typical, and recommend longer response periods, financing terms for the buyer and a third-party valuation before the offer when the owners' means differ (Pinto Shekib, June 2026). Each of the fixes below goes at one of the conditions the clause depends on.

• A financing period. Time to raise a loan is time to stay in the game. When a British Columbia court ordered a shotgun sale in Kinzie v Dells Holdings Ltd, 2010 BCSC 1360, it named the better-informed owner as offeror and gave the buyer 90 days to obtain financing, with a sale on the open market if neither could (as quoted by Landeo and Spier, 81 U. Chi. L. Rev. at 226). A partner who will need a bank or an SBA lender should ask for a closing period long enough for one; the sample below allows 120 days.
• Seller-financed terms. Letting the buying partner pay part of the price by a note to the seller lowers the cash needed to choose "buy", which is the whole of the poorer partner's problem. How to finance a partner buyout compares a seller note with bank and SBA loans.
• A floor price. A minimum tied to an annual certificate of agreed value, an appraisal or a formula stops a lowball offer below it. The floor should be set low enough that it does not become the price.
• A sealed-bid auction instead. Each owner submits a sealed offer to a neutral third party and the higher bid buys (Maddin Hauser calls this the Texas shoot-out). In the "Dutch auction" version each names the lowest price at which they would sell, and the lower bidder sells to the other at that price (LexisNexis). Neither owner sees the other's figure first. An auction does not cure everything: in Landeo and Spier's model the better-informed owner shades the bid below the equitable value and profits, and a bidder who cannot fund a high bid is still outbid.
• Who may pull the trigger, and when. No trigger in the first years, only after a deadlock has run a set time, a deposit with the offer, and proof that the offeror can fund the purchase all make a shotgun harder to use as a raid.

A sample shotgun clause with a floor and a financing period

The wording follows the shotgun clause in the deadlock clause guide and adds the protections above. The bracketed figures are choices to make, not defaults.

Buy-Sell Offer.

(a) Offer. At any time after [the second anniversary of this Agreement], and only after a Deadlock (as defined in Section [__]) has continued unresolved for at least [sixty (60)] days, either Partner (the "Offeror") may deliver to the other Partner (the "Offeree") a written notice (an "Offer Notice") stating a single cash price per percentage interest in the Partnership (the "Offer Price") at which the Offeror is willing either to purchase the Offeree's entire interest or to sell the Offeror's entire interest, at the Offeree's election. The Offer Notice shall be accompanied by (i) a deposit of [five percent (5%)] of the aggregate price for the Offeree's interest, delivered to [escrow agent], and (ii) written evidence that the Offeror has cash or committed financing sufficient to complete that purchase.

(b) Floor Price. The Offer Price shall not be less than [ninety percent (90%)] of the value per percentage interest stated in the most recent Certificate of Agreed Value delivered under Section [__] or, if none has been delivered in the preceding [eighteen (18)] months, as determined by an independent appraiser appointed under Section [__]. An Offer Notice stating a lower price is void.

(c) Election. Within thirty (30) days after receiving the Offer Notice, the Offeree shall elect, by written notice to the Offeror, either (1) to sell the Offeree's entire interest to the Offeror at the Offer Price, or (2) to purchase the Offeror's entire interest at the Offer Price. If the Offeree does not respond within thirty (30) days, the Offeree is deemed to have elected to sell under clause (1).

(d) Closing and Financing Period. The closing of the elected transaction shall occur within one hundred twenty (120) days after the election. A purchasing Partner may pay up to [fifty percent (50%)] of the purchase price by a promissory note to the selling Partner, payable in equal monthly installments over [five (5)] years with interest at [the prime rate published in The Wall Street Journal on the closing date plus two percent (2%)] per year, secured by a pledge of the interest purchased.

(e) Failure to Close. If the Offeror fails to close a purchase under clause (1), the deposit shall be paid to the Offeree. If the Offeree elects to purchase under clause (2) and fails to close within the period in clause (d) for any reason other than the Offeror's default, the Offeror shall purchase the Offeree's entire interest at [ninety-five percent (95%)] of the Offer Price within sixty (60) days thereafter. In every other case the deposit shall be returned to the Offeror or credited against the price it pays.

If the relationship has already broken down and the agreement has no exit clause, the options narrow to negotiation, mediation or arbitration, or a court; judicial dissolution grounds by state lists when a court will step in, and how to buy out a business partner covers the negotiated route.

General information, not legal or financial advice. Whether a shotgun clause suits a partnership depends on the partners' means, what each knows and the state's law on the agreement; a lawyer in your state should read the actual clause before it is signed.